Asia wrap: The unusual perils of borrowing short lend to lend long

After a parabolic fortnight, which has felt like a decade, the week has started on a much calmer note. However, officials will continue to have an information advantage over market participants, which makes the fear of the unknown a concern.

And stocks are trying to find a new equilibrium as bank stresses ease, and US yields shift higher. We remain skeptical that banking stresses can continue to be priced as a US-only event and think this episode ends as a smaller rumble or spreads further abroad. Currently, markets( and ourselves) are leaning toward the smaller rumble.

Although it is well-known that regional banks "borrow short and lend long," their earnings have historically been remarkably resilient to monetary tightening because there was little competition for their deposits. So higher Fed funds rates didn't necessarily translate into higher deposit rates in the past. But in the age of digital banking, that has changed as in the click of a mouse, folks can take advantage of FDIC-insured deposit brokers and banks offering higher depo rates.

As oil markets recovered from an excessively pessimistic week, overnight prices exhibited the typical knee-jerk reaction higher to a short-term supply disruption and then classic profit-taking taking recoil in Asia. 
After an exodus of investors' flows positioning, prices usually only recover gradually. Still, the China demand boom changes the " usual " landscape, so any disruption would illicit an outsized move.  

But we think the chase mode kicked in because most traders, even physical traders, were relatively flat after last week's VAR shock. 

Nevertheless, the bullish burden of proof ultimately remains on the market to pivot into a deficit, showing that marginal supply is needed.